Income Tax Severed Letters - 2004-12-17

Principales Questions: Un contribuable emprunte une somme d'argent et les intérêts sont déductibles en vertu de l'alinéa 20(1)c). Pour payer ces intérêts, il contracte un deuxième emprunt. Les intérêts sur ce deuxième emprunt sont-ils déductibles?

Position Adoptée: Oui

Raisons: Les conditions d'application de l'alinéa 20(1)c) sont rencontrées.

Principal Issues: whether proposed exploratory wind turbines will qualify as test wind turbines under proposed subsection 1219(3) of the Regulations

Position: yes, provided amendments to regulation are promulgated as described

Reasons: proposed project complies with proposed revisions and favourable written opinion has been provided by Natural Resources Canada

Principal Issues: Can survivor benefits under a pension plan be divided between a spouse and a former spouse?

Position: Yes, depending on the circumstances.

Reasons: The division of "survivor benefits" under a pension is not a division of "member benefits" as contemplated under the regulations that apply to registered pension plans. However, the provisions for survivor benefits allow for more than one beneficiary. Accordingly, a pension could simply be modified to allow multiple beneficiaries. In our view a division may also be made if the beneficiary was not changed in the plan and the division is done in accordance with the conditions set out in IT-499. However, a division may not be possible if these conditions are not satisfied.

Principal Issues: Will shares of a non-resident corporation that was delisted from the TSX Venture Exchange but are listed on the NASDAQ OTC Bulletin Board be a qualified investment for an RRSP?

Position: Most likely no but it will be a question of fact.

Reasons: The corporation would not be a public corporation and the shares are not listed on a prescribed stock exchange.

Principal Issues: Whether the look-back rule provided under subsection 66(12.66) applies to flow-through warrants exercised in a given fact situation.

Position: Yes.

Reasons: The requirements under subsection 66(12.66) are met.

2004-009499
XXXXXXXXXX Guy Goulet, CA, M.Fisc
(613) 957-9768
Le 13 décembre 2004

Principal Issues: Can subsection 152(1.4) be applied by the Minister to a partnership that is not a Canadian partnership and its only income earned in Canada is property income earned from a rental property in Canada?

Position: No.

Reasons: A partnership information return is not required under subsection 229(1) of the Regulations because the partnership does not carry on a business in Canada. Therefore, subsection 152(1.4) cannot be applied by the Minister.

Principal Issues: 1) Whether an entity, certified by the Minister of Human Resources, may issue a T2202A for amounts paid by an individual to acquire a passport allowing the individual to attend a package of seminars within a specified period? 2) In what taxation year should the entity issue the T2202A form if the seminars are taken in different taxation years? 3) In determining the amount to be entered on the T2202A where the seminars are taken in different taxation years, should the entity prorate the amount paid by the individual for the passport on the T2202A or reflect the cost of the course taken by the students?

Position: 1) Yes, provided that all conditions in subsection 118.5(1) are met. 2) The T2202A should reflect the amount paid by the student for the seminars attended in the taxation year. 3) The T2202A should reflect the amount determined by the entity in respect of the actual amount received by her in respect of the seminars taken in the period.

Reasons: 1) Individual entitled to a deduction for the tuition paid for the seminars taken. 2) The credit may only be taken in respect of seminars taken in the taxation year. 3) Both methods are correct but the amount put on the T2202A cannot exceed the amount received by the entity.

Principal Issues: Will there be a taxable benefit to an employee where an employer reimburses the employee for a portion of the purchase of a Palm Pilot to assist in managing his time more efficiently?

Position: Yes.

Reasons: ITA 6(1)(a)

Principal Issues: Taxability of benefits received by employees who are reimbursed or provided an allowance by the employer for the purchase of protective footwear. Definition of "protective" clothing.

Position: Question of Fact.

Reasons: When an employer reimburses an employee for an expense incurred for the purchase of protective clothing required for employment purposes and the employee provides the employer with a receipt, the employee is not considered to have received a taxable benefit under the Income Tax Act. However, when the employer pays the employee an amount that is not documented by a receipt, a taxable benefit is received by the employee, unless the law requires that protective clothing be worn on the work site, the employee actually bought the protective clothing and the amount of the reimbursement is reasonable.

Principal Issues: Do camp fees qualify as child care expenses?

Position: Question of fact. General comments provided.

Reasons: Insufficient facts provided

Principales Questions: Three professionals have been carrying on business through a partnership for many years. The partnership owns all the issued and outstanding shares of a corporation ("Serviceco") that renders services to the partners and their clients. The partnership would dispose of the shares of Serviceco in favour of a corporation ("OPCO") owned by one of the partners. Serviceco would then be wound-up into OPCO. OPCO would then effectively pay the purchase price of the Serviceco shares. Whether section 84.1 or 245 would apply in the given fact situation.

Position Adoptée: General comments provided. Section 84.1 would apply if it is established that the vendor(s) and OPCO do not deal with each other at arm's length with respect to the disposition of the Serviceco shares. The situation where one party to a transaction is merely accommodating the other party in an attempt to obtain a certain tax result may be a situation where the parties are not dealing at arm's length because they do not have separate economic interests which reflect ordinary commercial dealings between parties acting in their own separate interest. This could be the case in the given situation if, among other things, it is established that a significant portion of Serviceco's assets consists of cash or near-cash. Subsection 84(2) or 245(2) may also be applicable if the given fact situation involves surplus stripping.

Raisons: Wording of the Act and previous positions.

Principal Issues: 1. Whether an equalization of property payment pursuant to a court order on the marriage breakdown is deductible by the payer spouse.
2. Whether a reimbursement by the taxpayer of his former spouse's legal fees which were incurred to enforce the spouse's right to the taxpayer's pension on the dissolution of their marriage is deductible for the purposes of the Act?
3. Whether the interest paid on an obligation arising from a court order for an equalization of matrimonial property falling under the jurisdiction of the Family Law Act of Ontario is deductible under paragraph 20(1)(c)?

Position: 1. No.
2. No.
3. No.

Reasons: 1. Payments made to a former spouse in satisfaction of property rights arising from marriage are of a capital nature. As such, these payments cannot be considered to be "support" for purposes of the Act, which means that there is no deduction available to the payer spouse under the Act.
2. A taxpayer may deduct eligible legal expenses paid to collect or establish a right to a pension benefit. Eligible legal expenses under paragraph 60(o.1) do not include legal expenses relating to a division or settlement of property arising out of, or on a breakdown of, a marriage.
3. Interest is simply payable in respect of an amount owed to the former spouse and the amount is neither "borrowed money" for the purposes of subparagraph 20(1)(c)(i) nor an amount payable for property acquired for the purposes of subparagraph 20(1)(c)(ii).

XXXXXXXXXX 2004-007557
C. Lalonde
December 6, 2004

Principal Issues: 1. Whether a lump sum payment received by a Canadian resident from the World Bank pension is exempt from taxation in Canada?
2. If not, whether the amount can be transferred to a RRSP on a tax exempt basis?

Position: 1. A portion may be exempt.
2. No.

Reasons: 1. The payment must be included in income under subparagraph 56(1)(a)(i). A deduction is available under subparagraph 110(1)(f)(i) for treaty-exempt income to the extent that some or all of the pension payment would be excluded from taxable income in the country where the pension arise, if the taxpayer received the pension while resident of that country.
2. There is no provision under the Act for a tax free rollover to an RRSP under these circumstances.

XXXXXXXXXX 2004-010188
C. Lalonde
December 2, 2004

Principales Questions: Est-ce que les frais payés par un employé pour une garantie prolongée à l'égard d'une automobile sont déductibles dans l'année du paiement?
Est-ce que les frais payés par un travailleur autonome pour une garantie prolongée à l'égard d'une automobile sont déductibles dans l'année du paiement?

Position Adoptée: Si les frais relatifs à la garantie prolongée à l'égard de l'automobile sont par ailleurs déductibles selon les conditions mentionnées à l'alinéa 8(1)f) ou h.1) de la Loi, selon le cas, ces frais seront déductibles dans l'année du paiement des frais.
Si les frais relatifs à la garantie prolongée ont été encourus par le travailleur autonome pour gagner du revenu d'entreprise, la déduction de ces frais s'effectuera selon les dispositions du paragraphe 18(9) de la Loi.

Raisons: Les frais rattachés à une garantie prolongée sont des dépenses de nature courante. Un employé calcule son revenu d'emploi en utilisant la comptabilité de caisse et le paragraphe 18(9) ne s'applique pas à l'égard du revenu d'emploi.
Pour ce qui est du travailleur autonome, les frais rattachés à une garantie prolongée sont payés en contrepartie de services à rendre après la fin de l'année ou d'assurance visant une période postérieure à la fin de l'année.

Principal Issues: Whether the direction from a beneficiary not to receive the income of the trust results in the trust not falling within the definition of "testamentary trust" in subsection 108(1)

Position: Depends of the circumstances

Reasons: When the amount is payable to the beneficiary, it will result in a contribution.

XXXXXXXXXX Pascal Tétrault
2003-004617
December 1, 2004

Principales Questions: Voir ci-dessous

Position Adoptée: Voir ci-dessous

Raisons: Voir ci-dessous